At the time of independence in 1947, Pakistan was a very poor country and its economy majorly depends on agriculture. Since independence, Pakistan’s average economic growth rate has been higher than the average growth rate of the world economy during the period. Average annual was 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade. Industrial-sector growth, including manufacturing, was also above average. During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression.

The table which gives every five years progress of GDP, US Dollar Exchange Rate, Inflation Index, and Per Capita Income is given on the next page.

Year

Gross Domestic Product

US Dollar Exchange

Inflation Index
(2000=100)

Per Capita Income
(as % of USA)

1960

20,058

4.76 Pakistani Rupees

3.37

1965

31,740

4.76 Pakistani Rupees

3.40

1970

51,355

4.76 Pakistani Rupees

3.26

1975

131,330

9.91 Pakistani Rupees

2.36

1978

283,460

9.97 Pakistani Rupees

21

2.83

1985

569,114

16.28 Pakistani Rupees

30

2.07

1990

1,029,093

21.41 Pakistani Rupees

41

1.92

1995

2,268,461

30.62 Pakistani Rupees

68

2.16

2000

3,826,111

51.64 Pakistani Rupees

100

1.54

2005

6,581,103

59.86 Pakistani Rupees

126

1.71

The economy today

Pakistan raised back its Foreign Reserves to a handsome $16.4 billion by October 2007. Exceptional policies kept Pakistan’s trade deficit controlled at $13 billion. Pakistan’s exports increased to $18 billion. The revenue generation increased to become $13 billion and attracted foreign investment of $8.4 billion. Since the beginning of 2008, Pakistan’s economy has a downfall due to war on terror. The War on Terror has created great instability and led to a decline in FDI from a height of approximately $8bn to $3.5bn for the current fiscal year. Combined with high global commodity prices, the dual impact has shocked Pakistan’s economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support.

Pakistan’s manufacturing sector is growing from 2000. In 1999, large scale manufacturing is 1.5% and it is 19.9% in 2004-05. So it makes an average 8.8% by the end of 2007. Below is growth of large scale manufacturing,

1999-00 – 1.5%

2000-01 – 11%

2001-02 – 3.5%

2002-03 – 7.2%

2003-04 – 18.1%

2004-05 – 19.9%

2005-06 – 8.7%

2006-07 – 8.6%

2007-08 – 5%

Finance:

Pakistan’s finance and insurance sector department also showed a great development from 2000. In 2005, it is at Rs.311, 741 million. It shows a growth of 166% since 2000.

Stock market:

“Business Week” the international magazine declared Pakistan’s stock market, the best performing stock market index in the world, in the first four years of 21st century. But in 2008, there is a great decline in Pakistan’s economy due to uncertain political environment and many other reasons.

Tourism:

Pakistan has diverse cultures, people and landscapes. Tourism in Pakistan is a growing industry. To promoting Pakistan’s unique and various cultural heritages, PM launch “Visit Pakistan” marketing campaign in 2007. In 2009, The World Economic Forum’s Travel & Tourism Competitiveness Report ranks Pakistan as one of the top 25% tourist destinations for its World Heritage sites. Some famous tourist spots are shown below,

The income of a government from taxation, excise duties, customs, or other sources, appropriated to the payment of the public expenses. The Board of Revenue has collected nearly one trillion Rupees ($14.1 billion) in taxes in the 2007-2008.

Sectors of Pakistan economy

Agriculture:

Pakistan ranks fifth in the Muslim world and twentieth worldwide in farm output. About 25% of Pakistan’s total land area is under cultivation and is watered by one of the largest irrigation systems in the world. Agriculture accounts for about 23% of GDP and employs about 44% of the labor force. Zarai Taraqiati Bank Limited is contributing a lot in our agriculture sector.

Industry:

Pakistan ranks forty-first in the world and fifty-fifth worldwide in factory output. Pakistan’s industrial sector accounts for about 24% of GDP. Cotton textile production and apparel manufacturing are Pakistan’s largest industries, accounting for about 66% of the merchandise exports and almost 40% of the employed labour force. Merchandise exports mean export of goods not services. Other major industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing.

Automobile industry:

Pakistan is an emerging market for automobiles and automotive parts. The total contribution of Auto industry to GDP in 2007 is 2.8%. Auto sector presently, contributes 16% to the manufacturing sector which also is expected to increase 25% in the next 7 years. But in my opinion this prediction can’t be correct due to high inflation and shortage of CNG.

CNG industry:

Compressed Natural Gas (CNG) is a substitute for gasoline (petrol) or diesel fuel. It is considered to be an environmentally “clean” alternative to those fuels. In 2009, Pakistan is one of the largest users of CNG (compressed natural gas) in the world. Presently, more than 2,900 CNG stations are operating in the country in 85 cities and towns. It has provided employment to many people. But now this industry has a decline and shortage of CNG is creating a big problem for CNG station owners and the employs working at these stations. Many CNG stations closed and many are going to close if we don’t fight with the shortage problem of CNG.

Cement industry:

Growth of cement industry is rightly considered a barometer for economic activity. In 1947, Pakistan had inherited 4 cement plants with a total capacity of 0.5 million tons.

The industry comprises of 29 firms, with the installed production capacity of 44.09 million tons. There are four foreign companies, three armed forces companies and 16 private companies listed in the stock exchanges. The cement sector is contributing above Rs 30 billion to the national exchequer in the form of taxes.Exchequer was a part of the government’s hat was responsible for the management and collection of revenues.

Cement industry is also serving the nation by providing job opportunities and presently more than 150,000 persons are employed directly or indirectly by the industry.

IT industry:

Pakistan’s IT industry has been rising steadily. The Government of Pakistan has been proactively developing the IT sector in Pakistan. A few of the incentives offered include tax exemption till 2016, establishment of IT Parks with low rent, foreign ownership of equity invested in IT and 100% repatriation of profit allowed to IT companies. Profit repatriation is an important factor that determines whether ‘foreign direct investment’ in another country is actually profitable for the parent firm.

Total number of IT companies registered with PSEB

1306

Number of substantial IT companies region-wise breakup

445 Karachi
351 Islamabad/Rawalpindi
426 Lahore
84 Others

Total number of foreign IT and telecommunication companies working in Pakistan

60

Total industry size

US$ 2.8 billion (WTO-prescribed formula)

IT and IT-enabled services exports

US$ 1.4 billion (WTO-prescribed formula)

Percent growth in exports over the last one year

61%

Number of IT graduates produced per year

Approximately 20,000

Export targets for the current fiscal year 2007-2008

US$ 162 million

Textiles:

Pakistan’s textile industry and clothing sector has always been a major contributor to the foreign exchange earning and still contributes about 55% to the total exports.

Textile exports in 1999 were $5.2 billion and rose to become $10.5 billion by 2007. Textile exports managed to increase at a very decent growth of 16% in 2006. There is development in other sectors and exports of other sectors increases therefore textile exports share in total export of Pakistan has declined from 67% in 1997 to 55% in 2008.The top buyers of Pakistani textile goods are:

USA

UK

Japan

Korea

Saudi Arabia

Italy

Turkey

Germany

Etc.

Services:

Communication:

Pakistan won the prestigious Government Leadership award of GSM Association in 2006. In 2008, the mobile telephone market reached a subscriber base of 91 million users. In addition, there are over 6 million landlines in the country with 100% fiber-optic network. The contribution of telecom sector to the national exchequer increased to Rs 110 billion in the year 2007-08 on account of general sales tax, activation charges and other steps as compared to Rs 100 billion in the year 2006-07. The top mobile phone operators in Pakistan are:

Electricity:

Installed capacity

Electricity – total installed capacity: 19,505 MW (2007)

Electricity – Sources (2007)

Fossil fuel – 12,580 MW – 65% of total

Hydro – 6,463 MW – 33% of total

Nuclear – 462 MW – 2% of total

Pakistan is facing a serious shortage of electricity. We should make more dams, nuclear plants, and we have large coal reserves so we should depend on coal and finally we can make solar plants for producing electricity.

The first thing comes to my mind is that what is World Bank and what is the purpose of World Bank. The World Bank is one of the world’s largest sources of funding and knowledge to support governments of member countries in their efforts to invest in schools and health centers, provide water and electricity, fight disease and protect the environment. The World Bank is an international organization owned by the 184 countries. It is not a bank.

International monetary fund

The International Monetary Fund (IMF) is an organization of 186 countries, working to help the development of global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The IMF works to help development of global growth and economic stability. It provides policy advice and financing to members, in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.

The IMF’s fundamental mission is to help ensure stability in the international system. It does so in three ways: keeping track of the global economy and the economies of member countries; lending to countries with balance of payments difficulties; and giving practical help to members.

Difference between imf & world bank

People sometimes confuse the World Bank with the International Monetary Fund (IMF). Although the IMF’s functions complement those of the World Bank, it is a totally separate organization. While the World Bank provides support to developing countries, the IMF aims to stabilize the international monetary system and monitors the world’s currencies.

Imf assistance to Pakistan

When IMF is advancing loans to their members, they not only analyze the economic conditions of their members but the borrower will also have to frame its policies in the light of directions given by IMF authorities.

The question in my mind is that when and how much was lent to Pakistan by IMF. And what were the conditions imposed by IMF and what were the consequences of these loans.

Pakistan joined IMF on 11th July, 1950. IMF is providing financial assistance to Pakistan since 1952. According to 1977 statistics, Pakistan borrowed 1193 million dollars from IMF. Since 1980, the fund has made four main agreements with Pakistan as,

In November,1980

In December, 1988

In February, 1994

In July, 1997

1. THE AGREEMENT OF 1980:

Under this agreement, IMF provided $1.7 billion for the period of 1980-83. The biggest condition against this loan was to reduce the fiscal deficit. For this purpose they asked the Government to increase the prices of public enterprises like fertilizers, cement, electricity, clean water, educational and health services. The indirect taxes should increase and subsidies should be withdrawn. But the budget deficit in 1980-81 was 5.8% of GDP went to 9.1% in 1985-86. When Government of Pakistan again asked IMF for assistance, they showed dissatisfaction over our efforts to reduce fiscal deficit. Accordingly, IMF prepared a package of policies for Pakistan and chalked-out a time-table for the required changes. IMF set the following conditions for Pakistan:

Rupee be devalued by 20% in terms of dollar

The imports be liberalized

Prices should increase and subsides be withdrawn

The custom duty on imports be decreased and sales and exercise duty be imposed in the country

The industrial sector is liberalized from govt. controls through de-regulations and privatization.

2. THE AGREEMENT OF 1988:

During the period of 1988-91, IMF gave the assistance of $900 million to Pakistan in order to remove the deficit in BOP by redressing structural problems. According to this agreement:

The current account deficit of BOP which was 4% of GNP in 1987 was to be reduced to 3.3% of GNP in 1988-89, 2.7% in 1989-90, and 2.5% of GNP in 1990-91.

The foreign debt burden which was 31% of GNP in 1987 would be decreased to 25% in 19990-91.

The overall fiscal deficit of federal and provincial govt. which was 8.5% of GDP in 1986-87 would be reduced to 4.8% of GDP in 1990-91.

The bank borrowings be reduced to 1% of GDP, while non-bank borrowings to 3.6% of GDP.

The tax structure will be changed. The tax-base will be expanded and tax collection system will be improved.

The system of general sales tax will be introduced.

The federal and provincial govt. will control their expenditures, while the price of social services will be increased.

The main objective of this agreement was to reduce fiscal deficit. But the govt. failed to meet these conditions. The budget deficit which was 8.7% of GDP in 1990-91 decreased to 8% GDP in 1992-93. This means that the budget deficit could not be decrease appreciably.

3. THE AGREEMENT OF 1994:

The aim of this agreement was to reduce the financial deficit to 4% of GDP in 1994-95 and to 3% of GDP in 1995-96. But this agreement was renegotiated in December, 1995. As a result, this target was set at 5% of GDP for 1994-95 and 4% for 1995-95. In this agreement IMF stressed upon early conditions. As the price of gas, electricity, water, education and health services should be increased.

The govt. of Pakistan made some efforts but little success was attained. The budget deficit was 5.8% of GDP in 1994-95 and the target for 1995-96 was set at 5% of GDP. This led to create a suspension in the attainment of loan of $1.4 billion could be raised. Then the govt. of Pakistan failed to complete the conditions of IMF. Then the finance minister re-negotiated with IMF. As a result, a new agreement took place between Pakistan and IMF where the fiscal deficit was stipulated at 4% of GDP for 1996-97. Against it, the agreement was extended to September, 1997, instead of February, 1997, while the amount of loan was raised from $250 million to $850 million.

Government of Pakistan neither reduces its expenditure nor raised tax revenues. The IMF failed to learn any lesson from Pakistan’s experience. Government of Pakistan’s dependence remains the same and efforts for new agreement started.

4. THE AGREEMENT OF 1997:

In 1997, IMF prepared a ‘Medium Term Policy Framework Paper’ for the growth and the stabilization of the economy of Pakistan. This period is of three years from 1st July, 1997 to 30 June, 2000. Pakistan demanded a lot of amount as financial aid but IMF sanctioned $500 million on January 14, 1999. IMF suggested conditionalities in order to bring structural changes in the economy. The IMF issued a long structure. Government of Pakistan applied many suggestions but still they failed to impose sales tax at retail level. The rupee was devalued in 1998. The trade was liberalized. IMF has associated its tranche ($280 million) with the issue of IPPs. It means that unless govt. of Pakistan settles the issue with IPPs, they will not get any loan from IMF.

THE YEAR 2003-04:

Most projects with IMF were suspended because Pakistan could not complete their conditions. But first time in 2004, Pakistan got the entire amount which was sanctioned by IMF on PRGF which is $1.47 billion dollars.

Pakistan exports grew during this period. Although IMF and other financial institutions of the world have shown satisfaction over macroeconomic stability of the country, yet WB is of the view that Pakistan has to face the problem of internal and external loans, and it will have to reduce them.

THE YEAR 2008:

As a result of elections of 18th February 2008, General Musharaf had to surrender and Asif Ali Zardari became the president of Pakistan. At that time, the country was entrapped into economic difficulties. Not only trade deficit had gone to $20 billion, but the fiscal deficit also reached 4.7% of GDP. Foreign reserves had touched at lowest level.

The IMF’s Executive Board has approved a $7.6 billion loan for Pakistan to support its program to stabilize and rebuild the economy while expanding its social safety net to protect the poor.

“The Government’s program has two objectives: first, to restore overall economic stability and confidence through a tightening of macroeconomic policies, and second, to do so in a manner that ensures social stability and adequate support for the poor during the adjustment process,” said Juan Carlos Di Tata, the IMF mission chief to Pakistan.

Of the $7.6 billion loan, $3.1 billion will be made available by the IMF immediately to strengthen the reserve position. And the regular monitoring of the economy by the IMF will show how the macroeconomic objectives set by the Government are being met and whether they need to be adjusted in the light of changing circumstances.

The Pakistan authorities have already taken some difficult steps to achieve these objectives: energy subsidies have been cut and the interest rate has been increased to tighten monetary policy. The authorities’ program for the coming 24 months envisages a number of additional steps:

The fiscal deficit, excluding grants, will be brought to down from 7.4 percent of GDP in 2007/08 (starting July 1) to a more manageable 4.2 percent in 2008/09and 3.3 percent in 2009/10—in line with what it was three years ago. This fiscal adjustment will be primarily achieved by phasing out energy subsidies and strengthening revenue mobilization through tax policy and administration measures.

The State Bank of Pakistan (SBP) will act on monetary policyto build its international reserves, bring down inflation to 6 percent in 2010, and eliminate central bank financing of the government. The program includes measures to improve monetary management and enhance the SBP’s bank resolution capacity, and avoid the use of public resources to support the stock market.

Expenditure on the social safety net will be increased to protect the poor through both cash transfers and targeted electricity subsidies. The fiscal program for 2008/09 envisages an increase in spending on the social safety net of 0.6 percentage points of GDP to 0.9 percent of GDP.

THE YEAR 2009:

The IMF’s Executive Board agreed to increase lending to Pakistan by an extra $3.2 billion to fund priority spending and help the government provide assistance to nearly three million people displaced by military operations and a difficult security situation.

The Board reviewed progress under a $7.6 billion Stand-By Arrangement for Pakistan that was agreed in November last year. During the August 7 discussion, Directors agreed to increase lending by $3.2 billion, after a request from the Pakistan government to meet the country’s increased balance of payments needs resulting from higher oil prices.

EFFECTS OF IMF PROGRAMES:

IMF authorities think that the problem of Pakistan increased because of non-compliance with the IMF programs. But it is not true. The IMF program has led to increase the charges of gas, electricity, petrol and telephone. The imposition of sales tax and cut in tariff rates on the advice of IMF has greatly affected the incomes of the poor and middle class earners. They have widened the gaps between the incomes. The absolute poverty has increased which has promoted unsocial activities. But this is not all because of IMF, we are responsible for it. If our fiscal deficit and trade deficit decreases then we should not go to IMF for financing. But we should be prepared to pay more in the form of taxes and reduces imports; particularly oil etc, the dependence on IMF may go down.

World Bank assistance to Pakistan

They are supporting reforms at both the federal and provincial level.

For encouraging growth, investment, and employment generation, the Federal and Provincial Governments have been implementing various reform programs. In June 2007, the World Bank approved a US$350 million to support ongoing implementation of the Government’s Poverty Reduction Strategy. At the provincial level, the Bank approved operations worth US$430 million for Punjab, Sindh and the North West Frontier Province to help improve irrigation, education and human development indicators.

They are working with Pakistan Poverty Alleviation Fund to bring difference in the lives of poor.

The World Bank funded Pakistan Poverty Alleviation Fund Project (PPAF) is designed to reduce poverty and empower the rural and urban poor in Pakistan through the provision of resources and services to the poor, especially women. This is being achieved through an integrated approach that includes building institutions of the poor and then providing them with micro-credit loans; grants for small scale infrastructure projects; training and skill development and social sector interventions. The program is impacting over 10 million people. PPAF has issued 1.5 million micro-credit loans, (average loan-size US$ 150), benefiting nearly 9 million people.

They are helping the victims of the Earthquake.

The October 2005 earthquake in Pakistan destroyed or damaged around 575,000 rural houses, and rendering over 3 million people without shelter in North West Frontier Province (NWFP) and Azad Jammu and Kashmir (AJ&K). In response, the government created the Earthquake Relief and Reconstruction Authority (ERRA) and launched an ambitious US$1.5 billion owner-driven rebuilding program – largely suited to the mainly rural affected population. It is partially funded by World Bank.

They are working with the government to improve education outcomes.

The World Bank is providing assistance to the Government of Pakistan in education reforms, at both the national and the provincial level. This support is provided through development policy operations with a strong focus on primary and secondary education. These programs target increasing participation of girls and children from poorer houses. The World Bank is also assisting the government in improving the quality and relevance of its higher education and technical and vocational training system. They have a strong focus on improving the quality of education.

They are joining with international partners to help Pakistan fight polio.

They approved two projects US$42.71 million in 2003 and US $ 74.27 million in 2006 for Pakistan to purchase the oral polio vaccine. The loan to Pakistan will help the country’s Polio Eradication Initiative which aims to make Pakistan a Polio free country. Since 1997 the number of polio cases has decreased from 1147 to 31 in 2007. The first project has been successfully completed.

They are focusing on un-served and underserved low-income communities.

In NWFP and AJK, Bank projects are supporting delivery of cost effective and sustainable community development schemes, and basic infrastructure and services. To achieve this, the role and capabilities of local governments at the district and lower levels have been strengthened. In AJK, the project has already reached a population of 893,000 against the original target of 830,000, through 320 CBOs. Out of the 54 Tehsil Municipal Authorities (TMA) in NWFP, 50 are now participating in the Project.

They are helping Pakistan prevent the spread of HIV/AIDS.

The key challenge facing the country is to expand and improve quality of HIV preventive services to vulnerable groups that are most at risk of contracting and transmitting the disease. These include sex workers and injecting drug users. The Bank is supporting the Government efforts to control AIDS through the HIV/AIDS Prevention Project designed to prevent the disease from becoming established in these populations, while at the same time working to protect these groups from stigmatization. A key focus of the project is delivery of HIV preventive services to high risk populations through public-private partnerships. A total of 17 service delivery packages for injecting drug users (IDUs), sex workers, truckers and jail inmates have been contracted out to NGOs by the National and Provincial AIDS Control Programs covering most major cities across the country.

They are helping to ‘improve trade flows’ and ‘lower transit costs and times’.

In 2005, the Government of Pakistan (GOP) launched major initiatives around the National Trade Corridor Improvement Program (NTCIP) to reduce the cost of trade and transport logistics and bring services’ quality to international standards in order to reduce the cost of doing business in Pakistan and ultimately enhance competitiveness and industrialization.

They rely on local expertise.

They rely mostly on local expertise. As 90% of their staff is local who are working for Pakistan. While a large part of World Bank’s value is its global experience and expertise, local knowledge is indispensable to effective development.

Assistance:

During the past four years from FY 2006 – 2009, the Bank has approved 30 projects of total US$3.7 billion for Pakistan.

The World Bank is currently working with the Government of Pakistan to prepare a new Country Assistance Strategy (CAS) for the period FY2010-2013.

Suggestion

Pakistan is a country having many natural resources in it. We should be self sufficient, we should rely on ourselves. Sincerity is the key to success so we should be sincere with our country and work hard for its development. If we have financial crisis, we should not beg for aid from IMF and World Bank or any other organization, but we can handle the problem by relying on ourselves. We should pay more taxes and we should try to remove corruption from every department of our beloved homeland. The government should make such opportunities that foreign investment is attracted towards us. By applying these things we don’t need to depend on IMF and World Bank.